It is not excluded that some set of consumer prices (or relevant consumer price index - CPI) drives the company's stock price. Obviously, this company competes with all other companies on the market. Therefore, the influence of the driving CPI on the company's stock price also depends on all other CPIs. To take into account the net change in various market prices, we introduce just one reference CPI as best representing the overall dynamics of the changing price environment. Hence, the pricing model has to include at least two defining CPIs. Because of possible time delays between action and reaction (the time needed for any price changes to pass through), the defining CPIs may lead the modeled price or lag behind by a few months.

The CMI monthly closing prices (adjusted for splits and dividends) were borrowed from Yahoo.com, and the relevant (seasonally not adjusted) CPI estimates through February 2014 are published by the BLS. It is worth noting that it takes approximately two weeks for the BLS to publish its estimates for the previous month. On April 5, we have the closing price for March 31, but the CPIs are available only for February. We have to update all models when new estimates are obtained for closing prices or CPIs, i.e. two times a month.

We have found that the evolution of CMI share price is defined by the consumer price index of household furnishing and operations [HFO] from the Housing CPI category and the index of motor fuel [MF] from the Transportation category. We assume that the index of motor fuel is the price driver. The defining time lags are both zero. The relevant best-fit model for CMI(t) is as follows:

where CMI(t) is the CMI share price in U.S. dollars, t is calendar time. Figure 1 displays the evolution of both defining indices since 2003. Figure 2 depicts the high and low monthly prices for CMI share together with the predicted and measured monthly closing prices (adjusted for dividends and splits).

The model is stable over time. Table 1 lists the best fit models, i.e. coefficients, b1 and b2, defining CPIs, time lags, the slope of time trend, c, and the free term, d, for select models for the period between September 2011 and February 2014. These models all have the same defining CPIs, time lags, and similar coefficients. All models are practically identical. Therefore, the estimated CMI model is highly reliable over time. The model residual error is shown in Figure 3. The model error has standard deviation $7.70 between July 2003 and February 2014.

The model residual shows that the current price is lower than the closing price on March 31 - $145.92. The difference between the observed and predicted prices is approximately $16, i.e. much larger than the standard error. It is not excluded that CMI price will fall in the next two months.

Table 1. Selected best fit models for the period between September 2011 and February 2014:

Month

b1

CPI1

lag1

b2

CPI2

lag2

c

d

Feb-14

-8.4012

HFO

0

0.1447

MF

0

8.3582

1007.132

Jan

-8.2407

HFO

0

0.1479

MF

0

8.2552

986.8984

Dec-13

-8.2423

HFO

0

0.1479

MF

0

8.2541

987.1116

Nov

-8.1019

HFO

0

0.1511

MF

0

8.1572

969.3595

Oct

-8.0189

HFO

0

0.1533

MF

0

8.0896

958.8746

Sep

-7.9659

HFO

0

0.1546

MF

0

8.0441

952.2164

Aug

-7.8634

HFO

0

0.1559

MF

0

7.9723

939.4761

Jul

-7.8298

HFO

0

0.1562

MF

0

7.9494

935.3226

Dec-11

-8.1258

HFO

0

0.1607

MF

0

8.0466

892.045

Nov

-8.2115

HFO

0

0.16

MF

0

8.1253

901.051

Oct

-8.2438

HFO

0

0.16

MF

0

8.1541

903.9983

Sep

-8.2357

HFO

0

0.16

MF

0

8.1498

902.3621

Figure 1. The evolution of HFO and MF indices:

Figure 2. Observed and predicted CMI share prices:

Figure 3. The model residual error: stdev=$7.70

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

We only use your contact details to reply to your request for more information.We do not sell the personal contact data you submit to anyone else.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you shortly for a conversation.

Thank you for your interest in Seeking Alpha PRO

Our PRO subscription service was created for fund managers, and the cost of the product is
prohibitive for most individual investors.
PRO Alerts is our flagship product for individual investors who want to be faster
and smarter about their stocks. To learn more about it, click here.
If you are an investment professional with over $1M AUM and received this message
in error, click here and you will be contacted shortly.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you when we have an individual investor product ready!